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Judge concerned about legal costs in diocese bankruptcy

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The federal judge handling the bankruptcy filing by the Diocese of Norwich raised concerns Thursday about the number, cost and role of the lawyers and financial experts in the case and their possible effect on the compensation available to those who say they were sexually assaulted by diocesan priests and other employees.

At one point Judge James Tancredi called the $490-an-hour paralegal rate charged by Ice Miller, the New York City firm hired by the diocese, as "shocking" for someone who doesn't have a license to practice law.

Tancredi also warned that if the case gets "get out of control with professional fees," he would not hesitate to look at implementing measures such as budget caps. He also urged lead diocesan attorney Louis DeLucia to "efficiently deploy his staff" to "avoid rate shock" at the end of the case.

U.S. trustee attorney Steven MacKey added the diocese's decision to hire two legal firms — Ice Miller and Robinson & Cole of Hartford — is increasing the legal costs. He said his office will continue to monitor how the diocese is spending money on its legal and financial experts to avoid unnecessary costs.

Ice Miller is charging the diocese between $395 and $940 per hour for its attorneys and $240 to $490 for paralegal work. Robinson & Cole is charging the diocese $550 to $800 for its attorneys.

DeLucia said he would discuss the judge's concerns with his management to see if adjustments can be made to maximize the recovery for the victims. While he said he understands the judge's concerns, he said his firm's rates are less than its competitors'. He added that much of the money is spent at the beginning of such cases and also said many fees were related to addressing unanticipated issues raise by the U.S. trustee. He added the financial experts were needed because the diocese does not have the type of staff needed to compile the required information.

Tancredi made his comments as a dozen attorneys representing the diocese, victims and the U.S. trustee — who oversees the bankruptcy case to ensure compliance with bankruptcy laws — participated in a more than four-hour remote hearing on Thursday so Tancredi could rule on various motions and orders. These included the diocese's cash management, insurance and utilities payments, investments and hiring of legal and financial firms. 

In July, the diocese filed for Chapter 11 bankruptcy in the face of more than 60 men filing lawsuits in which they charge they were raped and sexually assaulted as boys by Christian Brothers and other staff at the diocese-run Mount Saint John Academy in Deep River from 1990 to 2002. Mount Saint John was a residential school for troubled boys whose board of directors was headed by retired Bishop of Norwich Daniel Reilly. The diocese also is expected to face additional claims by people who say they were sexually assaulted by clergy in its parishes.

Last month the diocese placed its assets such as cash, investments, cars and accounts receivable at $21.2 million but has not determined the current value of the 14 properties it owns. In its initial bankruptcy filing, the diocese estimated its assets at $10 million to $50 million but its liabilities at $50 million to $100 million. In past years, settlements paid to individual victims who sued the diocese averaged about $1 million each.

In a recent four-month period, the diocese reported that it had spent $663,508 on attorneys' fees related to the bankruptcy and $341,692 on bankruptcy and financial services.  

Victims and their supporters, including attorney Eric Henzy, who represents the committee of victims, have expressed concerns that the greater the legal and professional fees in the bankruptcy case, the less money there will be to distribute to the victims.

Henzy said his firm, which is charging $292 to $427 an hour, has discounted its fees on the case by 10%. The diocese is paying those fees.

"These people have been living this for a long time. They want minimum cost and maximum recovery. They want it to happen sooner," Henzy told Tancredi about the victims. "But there's going to be complications."  

During Thursday's hearing, Tancredi told the attorneys that professional fees diminish the amount of money that can be recovered by the victims. 

DeLucia said that once the deadline is set and reached for victims to file claims, the diocese will be able to determine the amount of the claims and the scope of its exposure. This also will determine the amount of funds that will be available from insurers, parishes and other sources.

The judge also agreed to an order that the diocese will publish the commencement of the bankruptcy proceedings and information on filing a claim in three additional newspapers — the Journal Inquirer of Manchester, The Middletown Press and the Willimantic Chronicle — in an effort to reach more victims. It had already been advertised in newspapers including The Day, Hartford Courant, USA Today and various Catholic publications. 

No deadline has yet been set for the filing of claims. Information about the bankruptcy and filing claims can be found at dm.epiq11.com/case/rcdn/info.

j.wojtas@theday.com

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